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Comment & analysis

Pitfalls of export processing zones

Herbert Jauch

Under AGOA, Ramatex Textile & Garment Factory, a Malaysian company moved to Namibia. Herbert Jauch looks at the cost of allowing companies to operate without government regulation, tax exemption and government sanctioned suspension of worker rights in Export Processing Zones.

The closure of the Ramatex clothing and textile factory in Windhoek last week, marked the end of one of the most controversial investments in Namibia since independence.

The way in which the closure occurred once again showed the disregard of the company for its workers as well as the host country.

The company managed to mislead Namibia (in particular the government) time and again by providing false information to hide its true intentions of using the country merely as a temporary production location.

While trade unions and government are still trying to achieve some compensation for the retrenched workers, we need to draw some hard lessons from the Ramatex experience.

This article sketches some of the events surrounding the company's operations in Namibia and suggests that a fundamentally different approach to foreign investments should be pursued in future.

When Namibia passed the Export Processing Zones (EPZ) Act in 1995, government argued that both local and foreign investment in the first five years of independence had been disappointing and that EPZs were the only solution to high unemployment.

The EPZ Act went as far as suspending the application of the Labour Act in EPZs which government described as necessary to allay investors' fear of possible industrial unrest.

Namibia's trade unions on the other hand opposed the exclusion of the Labour Act and after lengthy discussions a "compromise" was reached which stipulated that the Act would apply in the EPZs, but that strikes and lock-outs would be outlawed for a period of 5 years.

In 1999, the Labour Resource and Research Institute (LaRRI) carried out a comprehensive study of Namibia's EPZ programme which found that EPZs had fallen far short of the expectations of creating 25 000 jobs and facilitating skills and technology transfer needed to kick-start manufacturing industries in the country.

At the end of 1999, the EPZs had created very few jobs although millions of dollars had been spent on promoting the policy and on developing infrastructure with public funds.

By 2001, Namibia still had not managed to attract any large production facility through its EPZ programme. This changed when the Ministry of Trade and Industry announced that it had succeeded in snatching up a project worth N$1 billion ahead of South Africa and Madagascar, which had also been considered by the Malaysian company Ramatex.

This was achieved by offering even greater concessions than those offered to other EPZ companies, such as corporate tax holidays, free repatriation of profits, exemption from sales tax etc.

Drawing in the parastatals providing water and electricity (Namwater and Nampower) as well as the Windhoek municipality, the Ministry put together an incentive package which included subsidised water and electricity, a 99-year tax exemption on land use as well as over N$ 100 million to prepare the site including the setting up of electricity, water and sewage infrastructure.

This was justified on the grounds that the company would create close to 10 000 jobs.

The plant turned cotton (imported duty free from West Africa) into textiles for the US market.

Ramatex' decision to locate production in Southern Africa was motivated by the objective to benefit from the Africa Growth and Opportunity Act (AGOA) which allows for duty free exports to the US from selected African countries who meet certain conditions set by the US government.

Even before the company began its operations in 2002, it made headlines, as it became the most talked about investment in Namibia.

The debate around Ramatex revolved around the massive size of its operations, the establishment of a new industry and the controversies surrounding the company's environmental impact and working conditions.

A study carried out by LaRRI in 2003 found widespread abuses of workers rights, including included forced pregnancy tests for women who applied for jobs; non-payment for workers on sick leave; very low wages and no benefits; insufficient health and safety measures; no compensation in case of accidents; abuse by supervisors; and open hostility towards trade unions etc.

Tensions boiled over on several occasions.

After spontaneous work stoppages in 2002 and 2003, Ramatex finally recognised the Namibia Food and Allied Workers Union (NAFAU) as the workers' exclusive bargaining agent in October 2003.

The recognition agreement was supposed to pave the way for improved labour relations and collective bargaining.

However, the union was unable to make progress on substantive issues and on several occasions reported Ramatex to the Office of the Labour Commissioner for unfair labour practices and the company's unwillingness to negotiate in good faith.

Despite several attempts to find a solution through mediation, no agreement was reached.

By September 2006, the company had not raised wages and benefits and claimed that its operations in Namibia were running at a loss.

Ramatex' workers, however, had run out of patience and declared that they would go on strike unless their wages were significantly improved.

When the company refused to meet their demands, they went on strike in October 2006, bringing the operations to a standstill.

Within 2 days, workers achieved what 4 years of negotiations had failed to deliver: Hourly wage increase from N$ 3 to N$ 4 plus the introduction of some benefits such as housing and transport allowances.

Ramatex used a significant number of Asian migrant workers, mostly from China, the Philippines and Bangladesh.

Although the companyclaimed that they were brought in as trainers, most of them were employed as mere production workers with basic salaries of around U$ 300 - 400 per month which were higher than their Namibian counterparts.

The import of Asian workers also served the company's strategy of "divide and rule".

Workers were divided according to nationalities, received different remuneration and benefits and found it hard to communicate with each other.

As a result there was hardly any joint action by all Ramatex workers.

Protests by Namibian, Filipino and Bangladeshi workers were isolated and found no support from their Chinese counterparts while protest by migrant workers usually resulted in the immediate deportation.

At the height of Namibian operations in 2004, Ramatex and its subsidiaries employed about 7000 workers, including over 1000 Asian migrant workers.

Following retrenchments in 2005 and 2006 (including the closure of one subsidiary), this number dropped to 3 400 (including 400 Asian migrants) in early of 2007 and further to about 3000 by the end of that year.

These trends provided a clear indication that Ramatex was preparing for closure.

This followed the end of the global clothing and textile quotas in 2005 and could be observed all over the continent.

In Ramatex' case, the company indicated it was planning to expand in Cambodia and China and negotiations are underway for the establishment of 2 new plants in Vietnam.

Ramatex' global strategy always regarded Namibia as a temporary production location although the Namibian government seemed to think otherwise.

Ramatex' claims of losses of up to N$ 500 million in Namibia seem devoid of truth.

Ramatex pays no taxes in Namibia, receives water and electricity at subsidised rates and is exempted from import duties in the USA.

It is thus almost impossible for the company to make losses in Namibia and the truthfulness of Ramatex' claims is highly questionnable.

The economic assessment of Ramatex' operations must also take into account the substantial environmental damages caused by operations including the pollution of Goreangab dam and underground water resources.

The Namibian government had been warned by Earthlife Africa but did not take precautionary measures. Instead, the municipality announced near the end of 2006 that it would take over the company's waste management.

Ramatex should have been held fully accountable and forced to rectify the damage at its own costs.

Ramatex represents a typical example of a transnational corporation playing the globalisation game. Its operations in Namibia have been characterised by controversies, unresolved conflicts and tensions.

Worst affected were the thousands of young, mostly female workers who had to endure highly exploitative working conditions for years and in the end were literally dumped in the streets without any significant compensation.

Ramatex had shown the same disregard for workers when it closed its subsidiary Rhino Garments in Namibia in 2005.

Workers had observed the company shipping equipment out of the country but when confronted, Ramatex initially denied plans to close its subsidiary but then retrenched about 1 500 workers in April.

Overall, Ramatex' presence in Namibia was a disaster for the country and some hard lessons will have to be learned to avoid a repeat in future.

When dealing with foreign investors there is an urgent need to ensure (at the very least) compliance with national laws and regulations, workers rights, as well as environmental, health and safety standards.

Experiences elsewhere have shown that compromises on social, environmental and labour standards in the name of international competitiveness lead to a "race to the bottom", leading to a process of self-destruction.

In the case of Ramatex, the Namibian government abandoned its role as regulator and some officials defended Ramatex.

The case has shown the problems of blindly accepting any investment as beneficial.

Instead of adopting an open-door policy towards foreign investment, Namibia (and Africa in general) need to adopt selective policies that channel investments into certain strategic sectors that will have a lasting developmental impact.

They require a very clear and strategic development agenda that is not based on blind faith in foreign investment as the panacea to our development problems.

The lack of alternative programmes for effective economic development and job creation places government in a weak position to negotiate adherence to labour, social and environmental standards with foreign investors.

This has to be the starting point for breaking the chains of dependency.

The project on Alternatives to Neo-Liberalism in Southern Africa (ANSA), for example, is an attempt to develop a different and comprehensive development strategy for the region.

The ANSA proposals will be introduced in Windhoek next week and hopefully will pave the way for a more open-minded discussion about a suitable development strategy.

* Herbert Jauch is head of research and education for the Labour Resource and Research Institute (LaRRI). This report was written prepared for The Namibian by the author.